LATIMER MANAGEMENT CONSULTANTS v ELLINGHAM INVESTMENTS LIMITED [2006] EWHC 3662 (Ch)

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
[2006] EWHC 3662 (Ch)Case No Case No: HC04C00241Venue Royal Courts of Justice, Strand, London WC2A 2LL
Between
LATIMER MANAGEMENT CONSULTANTSClaimant/RespondentELLINGHAM INVESTMENTS LIMITEDMR PEIRESDefendant/Appellant
Before
Mr Bernard Livesey QCsitting as a Judge of the High CourtMR TALBOT QC (instructed by Goldkorn Matthias Gentle) appeared on behalf of the ClaimantsMR TAYLOR (instructed by Barclay Taylor) appeared on behalf of the DefendantDate 30 October 2006
[1]MR LIVESEY: This is an application by the claimants for an order that the order for costs made on 29 July 2005 in their favour, against the first defendant, Ellingham Investments Limited ("Ellingham"), be paid by the second defendant, Mr Peires, personally, on the grounds that he was the funder of Ellingham. The application is made pursuant to CPR 3.17.[2]The background to this matter is set out in the judgment in the main action [2005] EWHC 1732 Ch. which I I handed down on 29 July 2005. In short,Latimer succeeded, for the most part, against Ellingham. Mr Peires was successful in resisting a claim made by the second and third claimants against him personally in the alternative.[3]On 29 July 2005 I also made an order that Ellingham should pay to the claimants 82.5 per cent of the costs of the action, to be assessed on the standard basis if not agreed. Although Mr Peires succeeded in his defence I did not make an order for costs in his favour. I am reminded that at that stage I declined a request that I should make an order that the order for costs against Ellingham should also be enforceable against Mr Peires personally.[4]In order to understand the merits of the present application it is important to look in greater detail into the background. The Background in Detail[5]On a date which I believe was in or about 1997, Mr Peires arranged for an offshore discretionary trust called the Ellingham Trust to be created in the British Virgin Islands and endowed with funds for the benefit of members of his close family and certain charities. He asserts, and the claimants do not challenge the assertion, that he is excluded from the class of persons able to be a beneficiary under the trust. The trustees were in Guernsey, the trust owns Ellingham, one of its investment vehicles, which was incorporated in the British Virgin Islands. Mr Peires is not a director, having become bankrupt and served a sentence of imprisonment for fraud some years ago.[6]At the time of the trial and the making of the costs order it was represented that Ellingham was the controlling shareholder in KeyWorld Investment Plc (KeyWorld). It was implied that it was worth a substantial sum. It has since emerged that Ellingham owned only 39.3 per cent of those shares, that the shares were charged to secure various loans and following an attempt to enforce the judgment in this action it has gone into insolvent liquidation.[7]The litigation arose because, pursuant to an agreement made between Mr Peires from Ellingham and Mr Gee from Latimer, Ellingham had contracted with Latimer that it should provide the services of Mr Gee as a consultant for reward. Mr Peires had also arranged for Mr Gee to be employed as a director of KeyWorld.[8]For reasons discussed in the first judgment the arrangements came to an end and Mr Peires negotiated with Mr Gee terms on which the termination of their business relationship was to be settled. Settlement was comprised of four agreements, of which Ellingham was in breach. In particular, Ellingham refused to make a payment of £12,500 to Latimer, pursuant to the first of the four agreements.[9]It is material to note that initially proceedings were brought in the Central London County Court by Latimer against Ellingham for the payment of that sum, that is to say £12,500. Ellingham entered a defence denying liability and alleging inter alia that there was no consideration for the payment. Latimer responded by amending the Particulars of Claim in order to allege that the agreement was only one element of a package of four contracts which should be read together and, by the amendment, he joined himself and his wife as claimant and Mr Peires in person as defendant.[10]The personal claim was pleaded in the alternative: by it the claimants alleged that Mr Peires had given his personal covenant that he would cause Ellingham to deliver on its obligations under the four agreements. The complication which was brought by these amendments resulted in the action being transferred to the Chancery Division. Here it was fought over three to four days.[11]I broadly accepted the evidence and submissions of Mr Gee, rejected the evidence of Mr Peires, and the claimants obtained judgment and an order for costs. An issue arose in the course of the hearing whether Mr Peires was a person who had de facto control of Ellingham. I concluded that he was and expressed this conclusion in paragraph 43 of my first judgment in the following terms:
"The conclusion to which I have come is that he was indeed in de facto control of Ellingham for a number of reasons. First of all, in all of the events with which we are concerned, there was no other person who acted on behalf of Ellingham. The directors of Ellingham were in fact a limited company called Woodleigh Limited, a Guernsey registered company, whose two directors executed the formal Agreements to which Ellingham was a party. Those directors however do not appear to have taken part in any management exercise in respect of any of the activities with which Ellingham was concerned over the period in question. It is also quite clear that all of the negotiations carried out on behalf of Ellingham were in fact carried out by Mr Peires. It was not a feature of any of his discussions with Mr Gee that he had to consult with any other person so far as Ellingham was concerned. In evidence before me, Mr Peires could not think of any decision taken by Ellingham on any subject with which he did not agree. Mr Gee treated him as though he were the person with control at Ellingham, as also did Mr Goodman. Although Mr Peires asserted that he was not a person with de facto control I simply do not accept what he says. If one reads any of his witness statements it is quite clear that he cannot help speaking in terms which demonstrate that the decisions were all made by him."
[12]When the application was made to me that Mr Peires should be made jointly liable to pay the costs ordered against Ellingham this was on the basis of my finding as to de facto control. I rejected that application on the basis that Mr Peires was acting on behalf of the company and had not given a personal covenant. He was therefore no more liable for the costs of Ellingham than any director of a limited liability company.[13]During the course of the trial there was little direct evidence as to the worth of Ellingham. Such evidence as there was pointed to its ownership of the controlling shareholding in KeyWorld. Although there was evidence that in early 2002 KeyWorld had suffered financial difficulties, it had survived those and it was then suggested on behalf of Ellingham at the trial that the bonus shares in KeyWorld, an order for the transfer of which to the Atrium Trust Mr Gee was seeking, had at the time of the trial a value of something of the order of £60,000. If this were the case Ellingham was a company of very substantial worth. Subsequent Events[14]Very shortly after the judgment on 10 August 2005 the claimants sought and obtained by consent a freezing order requiring Ellingham to retain assets within the jurisdiction up to the total sum of £84,707.66 so that it should be able to discharge the likely judgment debt and liability for the costs of the action. I say likely because although the judgment was handed down on 29 July the parties were unable to agree the form of the judgment and I had to make a further ruling at the start of the Michaelmas term. The consent to the freezing order was signed by Mr Peires who was expressed to be, "Authorised to sign on behalf of Ellingham".[15]Ellingham, however, did not make any payment. Therefore, on 30 September 2005 Latimer applied for, and on 2 December 2005 obtained, an order in the High Court of the British Virgin Islands for joint liquidators to be appointed. During the course of this procedure the claimants discovered that Ellingham did not have, and had not ever had a bank account, that its sole asset was its shareholding in KeyWorld, the shareholding was not a controlling interest but only a 39.3 per cent interest and even those shares were charged with debts of the order of £500,000. In the event it was patently insolvent and an order was made for it to be wound up.[16]On 8 December the claimants therefore, through their solicitor, asked Mr Peires if he had funded the litigation. It appears that he may not have replied. On 13 February 2006 they obtained an order against Saunders LLP, the solicitors who had acted on the trial, that they should disclose the names of those who had financed the action. The response from them, dated 24 February 2006 was:
"… Mr Norman Peires was regarded as our principal client and in effect bore responsibility for the entire legal costs of the defence of the Latimer against Ellingham action. There were no legal costs invoiced separately to Ellingham Investments Limited in relation to this action … As a courtesy we would ask you to note this firm's position in relation to the costs of Latimer v. Ellingham is not accepted by Mr Peires and has recently been disputed by him. Mr Peires has instructed other solicitors in relation to disputes concerning this firm's costs."
[17]Mr Peires has disclosed that he approved this letter and that it was at his request that the last quoted paragraph had been included. By letter dated 20 June 2006 Saunders LLP confirmed that:
"… For the avoidance of doubt, we confirm that the only payment received in connection with the Latimer v. Ellingham matter was from Mr Peires personally."
[18]In response to the application Mr Peires served a statement dated 26 April 2006 in which he made the point that he had conducted the litigation in good faith and with the benefit of favourable legal advice; that he did not stand to benefit from the litigation, that he was excluded from being a beneficiary under the Ellingham Trust. To the allegation that he funded the litigation he responded that he did not accept that he was in any way liable to Saunders LLP to pay for Ellingham's costs and that he was in dispute with Saunders LLP. In paragraph 17 of his statement he said: "… Ellingham's assets were shares in KeyWorld. Ellingham also owned Lifestyle 2000 Limited whose only assets were shares in KeyWorld. Since it did not have any liquid funds there were some occasions when money was taken from my bank account in the Isle of Man. This was purely a convenient and practical arrangement. It was, in fact, on behalf of the Ellingham Trust (sole shareholder of the first defendant) that payments were made and I had separate arrangements with the Ellingham Trust for the money I have used on its behalf". [Emphasis supplied].[19]Before passing on I mention that absolutely no documents or details were supplied of the separate arrangements which Mr Peires enjoyed with the Ellingham Trust.[20]Mr Peires also asserted that Ellingham was solvent at the time of the litigation. He asserted that Ellingham owned shares in KeyWorld which were worth £710,000 on 29 June 2005. On that date the shares were suspended in contemplation of a reverse takeover of a company called NGS. The price which was proposed to be attributed to KeyWorld shares was 0.067 pence per share, a premium on the previously quoted price of 0.05 pence. He acknowledged that Ellingham had loans secured on its shareholding of about £530,000; that left a margin sufficient to meet the judgment; however, the negotiations were terminated with NGS on 16 November 2005, at which date the value of the shares slumped to a fraction of their worth, making the company insolvent.[21]In a further statement dated 11 July 2006 Mr Gee remade his point that Mr Peires was a funder and that he controlled and was a beneficiary of the litigation. He also argued that on a true analysis KeyWorld was insolvent during the litigation and at the time when Mr Peires signed the consent order. At that time Mr Peires did not disclose that the only asset of Ellingham was its minority holding in the suspended shares in KeyWorld, which shares were already subject to two substantial charges. Both the claimants and the court were therefore misled. Had the claimants not been misled they would have made the present application at that point. The Response of Mr Peires[22]Mr Peires appeared in person and argued his case with skill and competence. He asked first on whom the burden of proof lay to establish funding and benefit. He explained that Ellingham, Lifestyle and KeyWorld were all dependent on the financial support of the Ellingham Trust "and my family". The fact that Ellingham did not have a bank account was because its sole function was as an investment company for the Ellingham Trust. Everyone believed at the time that Ellingham shares were of actual value and exceeded liabilities, including those for the claimants' costs. Although Ellingham did not control KeyWorld, it was able to do so if the interests of the family and other connected interest were taken into account. They, that is to say the aggregate family interests, decided to withdraw from the deal with NGS. Then, after the resulting loss of share value, "we took a decision after the court case that there was no reason to keep Ellingham surviving, because of the loss of value of KeyWorld, so we just decided to 'let it go'."[23]I asked him to deal with the allegation that he had funded the litigation and he said that he funded Ellingham from his bank own account so that it paid its way in the law suit. Funding Ellingham is what he had been doing since 1998:
"The company was dependent on us for funding - not just for a law suit. I funded the company to pay Mr Gee."
[24]By this last sentence I recalled that it was indeed he who had issued at least some of the cheques for some of the payments due to Mr Gee, pursuant to the contract for Mr Gee's services which was the subject of the substantive proceedings. The Law[25]In the last few years there have been a number of cases in which the jurisdiction to make an order has been developed. It is necessary to make reference to and consider some of them. Almost invariably they concern applications made against people who were non-parties to the litigation.[26]In Aiden Shipping Company v Interbulk Limited [1986] AC 965, the House of Lords held the court was entitled to make an order for costs against a non-party to the litigation, pursuant section 51.1 of the Supreme Court Act 1981. In Dymocks Franchise Systems (NSW) Pty Ltd v Todd [2004] 1 WLR 2807 , the Privy Council held that where a non-party promoted and funded proceedings by an insolvent company, solely or substantially for his own financial benefit, he should be liable for the costs if the claim (or defence) failed. It approved the principle that it was critical to the jurisdiction of the court that the application not be one in any way to vary or alter the initial order. The principle behind denying the right of the court to vary or alter a judgment regularly given and entered, was the need for finality of litigation. The variation or alteration of an initial order could be achieved only by appeal. The application in Dymocks did not seek to vary an order. It was, in the sense used in the cases, a supplemental order. It could not, of course, be anything else since the application was made against a person who was not a party to the original action or the original order.[27]The first question arising on this application is whether, assuming all the other requisite criteria are present, the ability to make a costs order is prevented because the party against whom it is sought is not a non-party. The procedure which prevailed under the rules of the Supreme Court, under which a court was functus officio after a final order had been drawn up, save to the extent that it could be corrected under the 'slip' rule, has been altered by the CPR, under which a different approach to the variation of even a final order now prevails. By CPR rule 3.17 the court is empowered in general terms as follows:
"The power of the court under these rules to make an order includes the power to vary or revoke the order."
[28]The approach to be adopted by the court under this rule has recently been considered by Patten J. in Lloyds Investments (Scandinavia) Limited v Christen Ager-Hanssen [2003] EWHC 1740 in the following terms. "It seems to me that the only power available to me on this application is that contained in CPR rule 3.17, which enables the court to vary or revoke an order. This is not confined to purely procedural orders and there is no real guidance in The White Book as to the possible limitation of the jurisdiction. Although this is not intended to be an exhaustive definition of the circumstances in which the power under CPR rule 3.17 is exercisable it seems to me that for the High Court to revisit one of its earlier orders the applicant must either show some material change of circumstances, or the judge who made the earlier order was misled in some way, whether innocently or otherwise, as to the correct factual position before him. "The latter type of case would include, for example, a case of material non-disclosure on an application for an injunction. If all that is sought is a reconsideration of the order on the basis of the same material then that can only be done, in my judgment, in the context of an appeal. Similarly, it is not I think open to a party to the earlier application to seek, in effect, to reargue that application by relying on the submissions in evidence which were available to him at the time of the earlier hearing but which, for whatever reason, he or his legal representatives chose not to employ."[29]In their judgment in Collier v Williams [2006] 1 WLR 1945 the Court of Appeal at paragraph 40 said:
"We endorse that approach. We agree that the power given by CPR rule 3.17 cannot be used simply as an equivalent to an appeal against an order with which the applicant is dissatisfied. The circumstances outlined by Mr Justice Patten are the only ones in which the power to revoke or vary an order already made should be exercised under rule 3.17."
[30]Neither Lloyds Investments nor Collier was concerned with the making of costs orders against either a non-party or a party against whom the court had already been invited, but declined, to make such an order. Applying the reasoning in those cases it seems to me that there can be no reason, in principle, why such an order cannot be varied provided that three conditions are fulfilled. First the court must be satisfied either that there has been a change of circumstance or that the court was misled in some material way at the time when the original order was made. Secondly, what I would call the criteria for making a costs order against the party personally must be satisfied. Thirdly the court must be able to conclude that it is just and reasonable for such an order to be made. The Principles and Criteria[31]The principles by which the discretion to order costs to be paid by non-parties are to be exercised are set out in the opinion of the board in Dymocks at paragraph 25 as follows:
"A number of the decided cases have sought to catalogue the main principles governing the proper exercise of this discretion and their Lordships, rather than undertake an exhaustive further survey of the many relevant cases, would seek to summarise the position as follows. 1) Although costs orders against non-parties are to be regarded as "exceptional" cases is whether in all the circumstances it is just to make the order. It must be recognised that this is inevitably to some extent a fact-specific jurisdiction and that there will often be a number of different considerations in play, some militating in favour of an order, some against. 2) Generally speaking the discretion will not be exercised against "pure funders", described in para 40 of Hamilton v Al Fayed (No2) [2003] QB 1175 , 1194 as "those with no personal interest in the litigation, who do not stand to benefit from it, are not funding it as a matter of business, and in no way seek to control its course"
. In their case the court's usual approach is to give priority to the public interest in the funded party getting access to justice over that of the successful unfunded party recovering his costs and so not having to bear the expense of vindicating his rights. 3) Where, however, the non-party not merely funds the proceedings but substantially also controls or at any rate is to benefit from them, justice will ordinarily require that, if the proceedings fail, he will pay the successful party's costs. The non-party in these cases is not so much facilitating access to justice by the party funded as himself gaining access to justice for his own purposes. He himself is "the real party" to the litigation, a concept repeatedly invoked throughout the jurisprudence – see, for example, the judgments of the High Court of Australia in the Knight case 174 CLR 178 and Millett LJ's judgment in Metalloy Supplies Ltd v MA (UK) Ltd [1997] I WLR 1613. Consistently with this approach, Phillips LJ described the non-party underwriters in T G A Chapman Ltd v Christopher [1998] I WLR 12, 22 as "the defendants in all but name". Nor, indeed, is it necessary that the non-party be "the only real party" to the litigation in the sense explained in the Knight case, provided that he is "a real party in … very important and critical respects": see Arundel Chiropractic Centre Pty Ltd v Deputy Comr of Taxation (2001) 179 ALR 406, 414, referred to in the Kebaro case [2003] FCAFC 5, at [96], [103] and [III]. Some reflection of this concept of "the real party" is to be found in CPR r 25.13(2)(f) which allows a security for costs order to be made where "the claimant is acting as a nominal claimant". 4) Perhaps the most difficult cases are those in which non-parties fund receivers or liquidators (or, indeed, financially insecure companies generally) in litigation designed to advance the funder's own financial interests. Since this particular difficulty may be thought to lie at the heart of the present case, it would be helpful to examine it in the light of a number of statements taken from the authorities. First, Tompkins J's judgment in the Carborundum case [1992] 3 NZLR 757, 765:
"Where proceedings are initiated by and controlled by a person who, although not a party to the proceedings, has a direct personal financial interest in their result, such as a receiver or manager appointed by a secured creditor, a substantial unsecured creditor or a substantial shareholder, it would rarely be just for such a person pursuing his own interests, to be able to do so with no risk to himself should the proceedings fail or be discontinued. That will be so whether or not the person is acting improperly or fraudulently. In many cases a major consideration will be the reason for the non-party causing a party, normally but not always an insolvent company, to bring or defend the proceedings. If a non-party does so for his own financial benefit, either to gain the fruits of the litigation or to preserve assets in which the person has an interest, it may, depending upon the circumstances, be appropriate to make an order for costs against that person. Relevant factors will include the financial position of the party through whom the proceedings are brought or defended and the likelihood of ti being able to meet any order for costs, the degree of possible benefit to the non-party and whether, in all the circumstances, the bringing or defending of the claim – although in the end unsuccessful – was a reasonable course to adopt. The directors of a company may frequently be in a position different from other non-parties with a direct financial interest in promoting or defending proceedings. Even where a company is in receivership, directors may have a duty to prosecute or defend a claim through the company in the interests of creditors other than the creditor that had appointed the receiver, or in the interests of the shareholders. Other creditors and shareholders are entitled to expect that those responsible for the management of the company will use all proper endeavours to ensure that their financial interests are protected or that there is a fund out of which such creditors can be paid …""
[32]The recent cases to which I have been referred illustrate a number of different situations in which the court may exercise its discretion to make an order against a non-party to litigation. First, there is the situation described in Dymocks where a non-party has promoted and funded proceedings by an insolvent party for his own financial benefit. He should be liable for the costs if the claim or defence or appeal fails.[33]In Arkin v Borchard Lines Limited (Nos 2 and 3) [2005] 1 WLR 3055 it was held that a funder, who entered into a champertous agreement under the expectation of reward if the claimant succeeded, would be likely to render himself liable for the opposing party's costs, to the extent of the funding which he had provided, even notwithstanding that he left the claimant in control of the litigation.[34]In Goodwood Recoveries Limited v Breen [2006] 1 WLR 2723 it was held that an order could be made against a director or shareholder of an insolvent company who controlled and supported an action brought by the company in which he was interested, even where he had acted without bad faith or impropriety, if he was the real party for whose benefit the litigation was brought; but only where the litigation would not have been brought by the claimant company but for the involvement of the director or shareholder.[35]In Total Spares and Supplies Limited v Antares SRL & ORS [2006] EWHC 1537 (Ch) David Richards J. made an order against the main shareholder and director of the defendant company on the ground that he had transferred the assets of the defendant company at an undervalue with the intention to defeat any order for damages or costs made against the company.[36]In Petromec Inc v Petróleo Brasiliero SA (Petrobrás) [2006] EWCA (Civ) 1038 the Court of Appeal held that actual funding was not a jurisdictional prerequisite to the exercise of a court's discretion under section 51 of the Supreme Court Act. If the evidence was that a person whether director or shareholder or controller of a relevant company had effectively controlled the proceedings and had sought to derive potential benefit from them, that would be enough to establish the jurisdiction.[37]Finally, in Suisse Security Bank & Trust Limited v Julian Francis [2006] UKPC 41 the Privy Council made an order against the claimant's main shareholder and chairman of its board on the basis that he had caused it to pursue an appeal to the Privy Council in his own interests and at his own expense. He was found to have been treating the appellant as his creature and preferring his own interest rather than its. The Application of CPR Rule 3.17[38]In order to provide the jurisdiction to vary an order for costs by seeking to make some other party to the litigation responsible for paying the costs of another party, against whom an order has already been made, the court has first to be satisfied that either there has been a material change in the circumstances or that there has been a misrepresentation, innocent or otherwise, affecting the earlier order.[39]If it had been the case that Ellingham was solvent at the time when the order was made and, as a result of some untoward event became insolvent and unable to meet the order for costs, that factor might in an appropriate case be a material change of circumstances. If it were the case that during the course of proceedings, and when the order was made, Ellingham had been represented as a solvent company when in reality it was not that would be a misrepresentation, innocent or otherwise, which if material would, in my judgment, provide the court with the jurisdiction to consider whether to vary an earlier costs order.[40]In the instant case I am satisfied on the balance of probabilities that there was both a material change and a misrepresentation which was material. I certainly thought that Ellingham was of sufficient financial substance to be able to meet the order which was made against it. I do not for a moment doubt that had the true position, as I propose to describe it in a moment, been known those acting for Latimer would have made the present application immediately after judgment was given but it did not have that information at that time. The misrepresentation does, in my judgment, give the court the jurisdiction to hear an application to vary the order for costs which was made and to make a supplemental order, provided of course that the claimants are able to prove that the criteria for making another order are fulfilled and that it is just to do so.[41]I now proceed to deal with my assessment of the financial position of Ellingham. I do so against the background that no financial accounts have been presented disclosing the financial position of either Ellingham or KeyWorld. The case that Ellingham was solvent has been presented by Mr Peires without relevant documentary corroboration and because the solvency of Ellingham is important, both from a jurisdictional point of view and also for compliance with the criteria for making an order, I deal with it in some detail. The Financial Position of Ellingham[42]Mr Peires accepts and explains that Ellingham's sole asset was a 39.3 per cent shareholding in KeyWorld, a company quoted on the alternative investment market. He stated that it had no need for a bank account; when it needed to make a payment he provided a cheque in accordance with arrangements he had with the trustees, details of which he did not give. His argument that KeyWorld was solvent was based on the proposition explained in paragraph 20 above that on 29 June 2005, that is to say just shortly after the hearing of the Ellingham action and about four weeks before I handed down the judgment, there were merger negotiations involving KeyWorld. The shares at the time became suspended. The Peires family, and its associated trusts and company interests then broke off discussions with NGS, shortly after the order for costs was made against Ellingham, and the price per share plummeted causing Ellingham to become insolvent.[43]There are a number of concerns I have about Mr Peires' argument. First, even if the details he provided of the merger negotiations are correct, which I am not prepared to accept without documentary support, the price which the negotiations gave to each KeyWorld share is only a notional value and not a price and, if a price, was only in the speculative hope that the merger would be successful. Secondly, I have only his assertion, which again I am not prepared to accept without documentary support, that it was the Peires family and interest which "broke off the negotiations" and did so "in contemplation of a better deal", which I understand never arrived. Thirdly, I doubt that even the price quoted on AIM, and represented to be the pre-offer price (which I assume was likely to have been the middle-market price rather than the bid price), is evidence which establishes the true market price of the shares. Almost certainly there was little, if any, trading in the shares, which seem to have been very tightly held within the Peires family. There is no evidence to show when the last open market transaction in the shares took place, in what numbers and at what price. The claimants are, in my judgment, correct in asserting that even on the assumption of the bid price of 0.05 pence per share Ellingham was in any event insolvent. I certainly do not accept, without compelling evidence, that the bid price of a 39 per cent shareholding which would have been a minority holding anyway, was 0.05 pence per share, rather than the price to which the shares collapsed following the termination of negotiations.[44]Apart from this, the account presented to me by Mr Peires shows that he was not merely in de facto control of Ellingham but also was in a position to manipulate the value of KeyWorld and therefore the veneer of solvency cast over Ellingham. On the one hand the institution of negotiations for reverse takeover appeared to give an enhanced "hope" value for the share price of KeyWorld; on the other hand he asserts that the family interests - I have little doubt that these were influenced strongly by Mr Peires - made the election, after they had learned the terms of the judgment and the order in this action, not to proceed with negotiations and caused the price to collapse. They then made the decision to "let Ellingham go" influenced, I have little doubt, by Mr Peires and the knowledge of the substantial order for costs made against Ellingham. Mr Peires has already made the point that it was he and the family who sustained Ellingham financially. It seems to me that a company which passes the solvency test only at the will of Mr Peires and his family interests and is "let go" when it is no longer in their interests to retain, is not what most people would regard as a solvent company. The Application of the Criteria[45]In the judgment on liability which I handed done on 29 July 2005 I found that Mr Peires was in de facto control of Ellingham. I also began that judgment by saying that "this is a case about Mr Gee and Mr Peires". In my judgment on costs on 29 July 2005 I found that the action against Ellingham had been defended only because Mr Peires:
"Had a bee in his bonnet and decided he was under no circumstances going compromise the claims and because he had the financial resources to make life difficult for Mr Gee by fighting it to the end."
[46]I had and have no doubt that he controlled the litigation on behalf of Ellingham. Saunders LLP solicitors have supplied information that he was the only person who provided any funding for the Ellingham's defence of the action against it. As explained above Ellingham was at the time of the litigation teetering on the brink of insolvency and only kept alive by money provided by Mr Peires and his family.[47]Mr Peires made the point that it was a requirement of the cases that he should "financially benefit" from the litigation. He was, however, excluded from any benefit which the Ellingham Trust would derive from the litigation under the terms of the trust deed and was not a director or shareholder in Ellingham. The named beneficiaries were members of his family. He highlighted the passage from the judgment of Phillips LJ, as he then was, in Murphy v Young & Co's Brewery [1997] 1 WLR 1591 , 1603-4, which was quoted in Dymocks as follows:
"Funding alone will not justify an order against a non-party under section 51. I do not consider that an order under section 51 will normally be appropriate where a disinterested relative has, out of natural affection, funded cost of the claim or a defence that is reasonably advanced."
[48]In addition, Mr Peires points out he was a party to the litigation and entitled to defend himself at his own cost. I shall deal with these points in reverse order. As regards the point that he was a party to the litigation, that is indeed correct. It is, however, pertinent to note that the action was originally against Ellingham alone for the sum of £12,500 and he was joined only because Ellingham raised the defence of no consideration, leaving the claimants little alternative but to plead the wider contract. It was in this instance that they joined him in the alternative. His success on that issue was catered for within my assessment of the limited percentage of costs which I awarded in favour of the claimants. I did not award costs in Mr Peires' favour, partly because I did not believe that any additional costs had been incurred and such as had been were likely to have been paid by Ellingham, whom he represented at the trial.[49]To the question he raised as to the person on whom the burden lies to prove the necessary interest, I respond that the burden of proof lies on the person who makes the allegation, that is to say, on the claimants. However, as I also explained, the court is entitled to draw appropriate inferences, not merely from the evidence which has been put before it during the course of the trial and application, but also from the absence of evidence which one would have expected to have been offered but has not been.[50]As regards the point that he did not have a financial interest in the outcome: as I have already stated, I accept Mr Peires is not a potential beneficiary under the trust. It was suggested by the claimants that he probably was a protector of the trust. He did not deny it. He did explain that he had some arrangement with the trustees - that they would repay him for the cheques he issued for Ellingham. He did not explain the nature and extent of the arrangement. I think it probable that he did benefit financially from the vast range of activities which he performed for the management of Ellingham and KeyWorld. I think it probable that those activities were financed by some form of consultancy agreement with the trust. They were too extensive to have been done merely on a 'gratis and for nothing' basis.[51]Quite apart from this, it is worth pointing out that the claim which Latimer brought against Ellingham was for the sum of only £12,500. That is a very small sum of money for the amount of costs which eventually were incurred. As I explained it was defended at the instance of Mr Peires because he set his mind against Ellingham making any payment. The fact that it was a personal battle between the two men, rather than their limited companies, was something to which I was drawing attention in the passages from my earlier judgment which I quoted above. The bad feeling between them was clearly generated in the eyes of Mr Peires when Mr Gee's solicitors attempted to persuade Ellingham to comply with its agreement to pay the sums due by threatening to take proceedings for the winding up of Ellingham and KeyWorld if the debt was not paid.[52]Where, as here, the real battle comprised in the litigation is more about principle and settling personal scores than money, it seems to me that the personal satisfaction which the party seeks to derive from defeating his opponent is sufficient to constitute a personal interest in the outcome of the litigation. I would hold that the benefit which must be shown as part of the criteria established by the cases need not be purely financial but can also be personal in the manner in which I have described as a feature of the present litigation. It is that strong personal interest which distinguishes Mr Peires from the "disinterested relative" contemplated by Phillips LJ.[53]In these circumstances I am satisfied that the essential criteria for making an order against Mr Peires in the terms sought exist in this case. The final question is whether it is just to make an order. There is no doubt in my mind that it is. He alone controlled the litigation. He was using the litigation to further his personal disagreement with Mr Gee. This course of litigation has been defended at great cost to the claimants. He knew the reality of the financial position of Ellingham. It probably had solvency only to the extent that he, and his family interests, willed it and supported it financially. He probably chose not to support it and influenced the family interest to "let it go" after, and because, the costs order was made against it. He would have been aware, and would have not been displeased with the result, that this would hurt the claimants greatly. In these circumstances, it seems to me to be just to make an order in the terms sought and I propose to do so.[54]As regards the costs of the application, it is right that they also should be paid by Mr Peires personally. The liability under the order for costs made on 29 July 2005 becomes payable by him within 14 days of today's date. In relation to the costs of and incidental to the current application, I make an interim order of not more than £10,000 payable within 14 days of today's date.[55]I note from Mr Taylor, that Mr Peires does wish to make application for permission to appeal. I do not propose to grant permission to appeal. He will have to make any application in the usual way to the Court of Appeal.

Cited in 6 later judgments